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AmericasFebruary 27 2017

Nafta: trade wars, trade hopes

Consternation has greeted US president Donald Trump’s protectionist trade agenda, but it might yet have some surprising benefits.
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At the intersection of US president Donald Trump’s key wants – boosting US manufacturing jobs and slashing immigration considered dangerous for one reason or another – stands trade. The harshest implementation of his ‘America first’ manifesto would hit Mexico as well as Latin America with great force and potentially long-lasting effects. Not all may be negative, however.

Mr Trump has called for a reworking of the North American Free Trade Agreement (Nafta) between the US, Mexico and Canada. Washington is expected to demand new terms so as to dissuade US businesses from moving plants abroad and turn the current US trade deficit with Mexico – now at about $60bn – into a surplus. Should demands not be met, Mr Trump is promising to walk away from the 23-year-old deal. Indeed, some believe Nafta will be history by 2018.

North American supply chains are highly integrated and reintroducing trade tariffs would badly disrupt them. A repeal of Nafta would threaten the communities, on either side of the border, that rely on it. Nafta trade is worth more than $1000bn, and can include anything from cars to electronics, garments to corn. Without it, US consumers and, perversely, employment will probably suffer. Mexico will fall into recession: trade accounts for two-thirds of its economy.

But the US’s protectionist stance might also kick-start Latin America’s long overdue integration. Brazil, Argentina and Paraguay could replace tariff-bearing corn imports from the US, on which Mexico has grown dependent: none currently hold a free-trade agreement with Mexico; all would benefit from it.

To do so, the grain exporters would need to commit to free trade. While on paper they have, to different degrees, the trade bloc Brazil, Argentina and Paraguay belong to, Mercosur, is far from a shining beacon, given its notoriously dysfunctional nature. Changing global conditions and new development needs might invigorate such free-trade efforts.

The US’s potential trade war with Mexico – and indeed the world, if Mr Trump's rhetoric is to be pushed to its extreme – might lead to the surprise outcome of improved trade within Latin America. 

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